Machine gun approach to the economical crisis

There is plenty of good advice out there for start-ups and small and medium businesses (SMBs) and most of it is: slow down, save cash, go back to basics, put on hold expansion plans, be careful- it is dangerous out there. By now, everyone read the Sequoia Capital’s 56 Slide Presentation Of Doom or read the variety of e-mails sent to start-up CEOs by their investors. Today on my way to lunch I caught a glimpse of Todd McCracken, president of the National Small Business Association, talking on NPR and advising small businesses to put growth plans on hold. It is all good advice, but I have an issue with the way it is delivered. 

Almost everything I am hearing now is generic and non specific. SAP  for example, did not hit its revenue goals so the company announced a travel reduction and a hiring freeze. The issue with hiring freeze is that it assumes that everyone you have in place right now is needed, and anyone new, no matter the role, geography or department is not needed. In a company of 50,000 people it cannot be true by definition. The right approach is to announce a 30 days freeze and use the time to come up with a plan to reduce where possible, and increase where needed so the business can face the new set of challenges ahead.

Senator McCain offered a similar approach in last week’s debate: he pledged a government spending freeze. It sounds great (this is why they chose to use the word “spending” instead of “budget” to describe the freeze) but it is only as reasonable for any American to spend exactly what he/she spent last year, ignoring all the changes around. Even if you earn about the same amount of money, you may want to save on new cloths and use the money to increase your saving goal for example. 

Why is everyone doing this? The simple answer: it is easy, it sounds big and meaningful and it makes you feel you are doing something. What do you think SAP shareholders want to hear from the CEO: “I am doing a line by line budget examination” or “I introduced a budget freeze effective today!”- the latter sounds so forceful and decisive, but is it what the company (any company) needs for the long run? 

Few weeks into the crisis is a good time to take a good look into your own company. Don’t do it alone, don’t do it with your team only- bring someone from the outside to help balancing your natural bias and evaluate your business, line by line. How much you are going to be affected by the economic meltdown? Which assets you have to help you go through it? What are the advantages you have in this situation? 

In many cases you will discover that the outcome is mixed: one product might sell less while others (say a cost saving product) may sell more. Your competition may vanish, you may be able to hire good people easily or you may find a good opportunity to expand overseas. Only when all your opportunities and risks are mapped out, can you decide what to do next. I can almost guarantee that your decision will not be drop everything or expand like crazy, but it will be somewhere between the two extremes, where it should be. 

In average, most SMBs and start-ups will earn less and spend less next year. But this average means that some will spend/earn more while some will spend/earn much less. In capitalism there is no average- it is about you, your company, and what’s best for its success.

PS- just after posting this post I read that raises $8 million in Series B funding. I don’t know the company but their name is the right one for the current economy…

Machine gun approach to the economical crisis

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